Key Trends in Google Revenue and how Google makes money

Google is an advertising behemoth, which makes most of its money through search based advertising revenue and advertising revenue from Youtube, Gmail, Google Map, AdSense, AdMob and Double Click Ad Exchange. Google advertising revenue constitutes majority of Google’s total revenue but Google has now started diversifying its revenue so as to reduce its dependence on advertising and more specifically search based advertising.

This blog discusses key trends in Google revenue, non-advertising revenue, segment wise Google’s revenue, Paid Clicks and Cost per Click earned by Google. Paid Clicks and Cost per Click metrics are 2 important metrics to understand the direction in which Google business is going.

Key trends in Google’s overall revenue is as following:

1. Increasing non-advertising revenue

Google parent company Alphabet Inc’s posted $26.064 Billion revenue in Q4, 2016 quarter (quarter ending 31 December 2016 and fiscal year ending December 31, 2016) with $3.665 Billion revenue coming from other bets and Google’s other revenue. Contribution of non advertising revenue increased from 10.5% in Q4, 2015 ($2.251 Billion revenue through other sources out of total revenue of $21.329 Billion revenue) to 14.06% in Q4, 2016.

2. Huge dependence on advertisement for revenue 

Google depends heavily on advertisement to generate its revenue. Google generated 88% of its total revenues from advertising in 2016. This over dependence possesses huge risk for Google’s overall revenue.

3. Mobile search and Youtube driven growth

Google posted 22% YoY growth in Q4 revenue largely driven by strong performance in mobile search and YouTube. Advertising revenue growth was mainly driven by mobile search with ongoing strength in YouTube and programmatic. There was substantial growth in other Revenues from Hardware, Play and Cloud.

4. Increasing paid clicks and decreasing cost per clicks continued

  • Paid Clicks – Paid Clicks can be divided into 2 components – Paid clicks on Google properties and Paid Clicks on Google Network Members property. Paid clicks on Google properties include clicks on advertisements on searches, other owned and operated properties such as Gmail, Maps, and Google Play and YouTube engagement ads like TrueView (counted as an engagement when the user chooses not to skip the ad) and certain trial ad formats. Paid Clicks on Google Network Members property, include clicks on advertisements served on Google’s AdSense for Search, AdSense for Content and AdMob businesses. Number of paid clicks increased in Q4, 2016 with same overall trend being 2016 as well.
  • Cost per Click – Cost-per-click is another metrics that helps in understanding Google business. Cost-per-click is equal to total click-driven revenue divided by total number of paid clicks and represents average amount Google charge advertisers for each engagement by users. Any change in Google Cost per Clicks also influences overall digital marketing cost of all the companies that relies on Google for their marketing needs. Cost per click decreased in the Q4, 2016 with same overall trend in 2016 as well.

5. Increase in competition

Google faces increasing competition from players in different industries which include:

  1. General purpose search engines and information services
  2. Vertical search engines and e-commerce websites
  3. Social networks
  4. Other forms of advertising and online advertising platforms
  5. Companies that design, manufacture, and market consumer electronic products
  6. Providers of enterprise cloud services and digital video services
  7. Digital assistant providers.

6. Risk faced by Google and its impact on Google’s revenue

Google faces many risks to its business including increased completion and advertiser’s willingness to pay for Google’s ad. These factors are mainly due to following factors:

  1. Fees advertisers are willing to pay based on how they manage their advertising costs
  2. Termination of contract by Google’s advertisers, companies that distribute Google’s products and services, digital publishers, and content partners if Google fails to provide value for them (such as increased numbers of users or customers, new sales leads, increased brand awareness, or more effective monetization) efficiently and competitively than other alternatives.
  3. Cyclical expenditures by advertisers based on overall economic conditions and their budgeting and buying patterns
  4. General economic conditions – Adverse macroeconomic conditions also impact user activity and demand for advertising leading to reduced spending by advertisers
  5. Advertiser competition for keywords
  6. Changes in advertising quality or formats
  7. Changes in device mix
  8. Query growth rates
  9. Challenges in maintaining growth rate as our revenues increase to higher levels
  10. Evolution of online advertising market
  11. Investments in new business strategies
  12. Changes in product mix
  13. Shifts in geographic mix of Google revenue
  14. Evolving user preferences
  15. Acceptance by users of Google products and services as they are delivered on diverse device
  16. Our ability to create a seamless experience for users and advertisers
  17. Movements in foreign currency exchange rates
  18. Seasonality
  19. Changes in foreign currency exchange rates
  20. Traffic growth in emerging markets and mature markets and across various advertising verticals and channels

7. Alphabet Revenue

Alphabet’s Q4, 2016 revenue increased to $26.1 billion in Q4, 2016 from $21.3-bn revenue in Q4, 2015.

Q4, 2015 Q4, 2016
Alphabet Revenue 21.329 26.064
Google Revenue 21.179 25.802
Other Bets Revenue 0.150 0.262

Breakup of Alphabet and Google’s revenue, expenses, profit and Net Income can be seen below:

Q4, 2015 Q4, 2016
Revenue 21.329 26.064
Cost of Revenue 8.188 10.661
Gross Profit 13.141 15.403
Selling/General/Administrative Expense 4.251 5.142
Research & Development 3.510 3.622
Operating Expense 7.761 8.764
Total Operating Expense 15.949 19.425
Operating Income 5.380 6.639
Net Income 4.923 5.333
Revenue 21.179 25.802
Operating Income 6,744 7.883
Other Bets
Revenue 0.150 0.262
Operating Income -1.213 -1.088

Alphabet’s revenue consists of revenue from 2 segments:

  • Google segment – Google segment consists mainly of 3 components –
    • Google properties
    • Google’s Network Member’s Properties
    • Google’s other revenue.
  • Other bets – Other bets include all other operating segments other than Google segment.

Alphabet’s segment wise revenue (revenue for Google properties, Google’s Network Member’s Properties and Google’s other revenue along with revenue from Google’s Other Bets for 2015 and 2016 can be seen below:

Q4, 2015 Q4, 2016 Year ended 2016 Year ended 2015
Google Segment
Google properties 14.936 17.968 63.785 52.357
Google’s Network Member’s Properties 4.142 4.431 15.598 15.033
Google’s Advertising revenues 19.078 22.399 79.383 67.390
Google’s other revenues 2.101 3.403 10.080 7.154
Google segment revenues 21.179 25.802 89.463 74.544
Other Bets
Other Bets Revenue 0.150 0.262 0.809 0.445
Consolidated Revenue 21.329 26.064 90.272 74.989

We will discuss trends in Google Segment revenue and Other bets later.

8. Google Paid Clicks

There was 36% YoY increase in Google aggregate paid clicks in Q4, 2016(with respect to Q4, 2015) and 20% QoQ increase in aggregate paid clicks (with respect to Q3, 2016).

Q4, 2015 Q4, 2016
Alphabet Revenue 21.329 26.064
Google Revenue 21.179 25.802
Other Bets Revenue 0.150 0.262

9. Google Cost per Click

There was 15% YoY decrease in Google Cost per Click in Q4, 2016 with respect to Q4, 2015 and 9% QoQ decrease in Google Cost per Click with respect to Q3, 2016.

YoY Change from Q4, 2015 to Q4, 2016 QoQ change from Q3, 2016 to Q3, 2016
Aggregate Cost per Clicks -15% -9%
Paid Clicks on Google properties -16% -11%
Paid Clicks on Google Network Members’ properties -19% 0%

There was 16% YoY decrease in Google properties Cost per Clicks and 19% YoY decrease in Cost per Clicks on Google Network Members’ properties. At the same time, there was there was 11% QoQ decrease in Cost per Clicks on Google properties and 1% decrease on Cost per Click on Google Network Members’ properties.

10. Google Properties Revenue

Revenue from Google properties primarily include revenue generated on:

  • com searches and searches from distribution partners using as default search in browsers, toolbars, etc
  • Other Google properties like Gmail, Maps and Google Play
  • YouTube TrueView and Google Preferred ads

Key trends in Google Properties revenue:

  1. Revenue growth – Revenue from Google properties increased by $11.428 bn from 2015 to 2016. Further there revenue from Google properties as percentage of Google segment revenues also increased during this period. Increase in Google properties revenue was driven by:
    • Mobile search ad revenue – Growth in Google properties revenue was primarily led by mobile search, which in turn was driven by improvements in ad formats and delivery launched during 2016.
    • YouTube revenue – Growth in You tube revenue was mainly driven by TrueView video ads and Google preferred ads (Google Preferred aggregates YouTube’s top content into easy-to-buy packages for brand advertisers), growing contribution of ad buying on DoubleClick Bid Manager and improvements in YouTube ad formats and delivery.
  1. Paid clicks on Google properties – Number of paid clicks increased 40% YoY from 2015 to 2016 due to:
    • Increased adoption of YouTube engagement ads
    • Improvements in ad formats and delivery
    • Increase in user base across all platforms particularly mobile
    • Global expansion of Google products and advertisers
  1. Decrease in CPC – Increase in paid clicks was offset by decrease in CPC paid by advertisers. The main reason for decrease in CPC was:
    • Continued growth in YouTube engagement ads where CPC is lower than CPC on other advertising platforms
    • Changes in device mix, property mix, product mix, geographic mix and ongoing product changes
    • General strengthening of U.S. dollar compared to certain foreign currencies

11. Google’s Network Member’s Properties trends

Revenue from Google’s Network Member’s Properties primarily consist of ad revenues generated from:

  1. AdSense (AdSense for Search, AdSense for Content etc.)
  2. AdMob
  3. DoubleClick AdExchange

Key trends in revenue from Google Network Members’ properties:

  1. Revenue growth – Revenue from Google Network Members’ properties increased by $565 million from 2015 to 2016. Main driver for this growth was strength in programmatic advertising buying and strength in AdMob. This growth was offset by a decline in traditional AdSense business and USD strengthening with respect to certain foreign currencies.
  2. Increasing Paid Clicks – Paid clicks increased by 3% from 2015 to 2016. This increase was driven by growth in AdMob and at the same time this increase was offset by declines in AdSense.
  3. Declining Cost per click – CPC decreased by 13% from 2015 to 2016. This decrease was driven by changes in product mix of Google Network Members advertising revenues, ongoing product and policy changes for AdSense aiming to enrich user experience, changes in property and device mix, geographic mix and strengthening of USD compared to certain foreign currencies

12. Google’s other revenue trends

Revenue from Google’s other revenues consist primarily of revenue from:

  1. Apps, in-app purchases, and digital content in Google Play store
  2. Hardware
  3. Licensing-related revenue
  4. Service fees received for our Google Cloud offerings

Key trends in Google other revenues

  1. Revenue Growth – Revenue from this segment increased $2.926 bn from 2015 to 2016. Its share as percentage of Google segment revenues also increased to 11.3% in 2016.
  2. This increase was due to growth in digital content products in Google Play store, primarily due to increase in revenue from in-app purchases, hardware sales, and service fees from Google Cloud offerings

13. Other Bets revenue trend

 Revenue from Other Bets consists of revenues and sales from:

  1. Internet and TV services
  2. Licensing and R&D services
  3. Nest branded hardware

Key trends in revenue from Other bets:

  1. Revenue Growth – Revenue from this segment increased $364 mn from 2015 to 2016. Its share as percentage of Google segment revenues also increased to 0.9% in 2016.
  2. This increase was driven by sales of Nest branded hardware and revenues from Fiber internet and TV services. There was also an increase in revenues from Verily licensing and R&D services from 2015 to 2016.





Android Marshmallow: Key Features

Google has recently released Android Marshmallow, which comes up with certain key features aimed at increasing overall user experience of a user. Google had announced 6 key features that are specifically aimed to enhance UX of an android user in the Google I/O on May 28, 2015. The key features announced in the I/O was as follow:

1. Android Pay
In the line of Apple pay and Samsung Pay, Android Pay aims to enter into the mobile payment ecosystem. Android Pay uses a device’s NFC connectivity to enable tap to pay services. User need to only unlock the phone, keep it near an NFC terminal and payment will get completed without opening any app. Android Pay will work with all major card and carriers and also work with all major commercial establishments.


Android Pay support t in Android Marshmallow

2. Privacy (App permissions)

In line of permission options in iOS apps, an app designed for Android M will ask for app permission as and when these permissions will be used by the app. Earlier app used to ask for all app permissions together during installation time. At the same time, users can navigate to setting section to check the list of permissions that app uses and revoke or provide for a permission.

Improved privacy feature in Android marshmallow

3. Improved Web Experience (Chrome Custom Tab)

Android M providers a new feature named “Chrome Custom Tab” which aims at providing way to harness chrome’s capabilities while keeping look and feel of native experience. Chrome Custom Tab will provide a way to open customized Chrome window on top of the active app, instead of launching the Chrome app separately. This will provide intuitive user experience while a user navigates between app and web.

Chrome Custom Tab support in Marshmallow

4. Simplified Security with Native Fingerprint Support
Android M will provide native fingerprint support on devices running on Android Marshmallow in a uniform way. The fingerprint securely unlocks the phone apart from authenticating a user while he signs in and checks out in Android Pay, Play Store and other apps such as e-commerce apps.

Native Fingerprint Support in Android Marshmallow

5. App links
Android M simplifies web redirection in that a user clicking on a web link in an external app will be automatically redirected to appropriate app corresponding to the web link. Earlier android used to ask a user if he wanted to open the web link in a web browser or the app supporting the web link. For example, earlier a user clicking a YouTube (Facebook or Twitter) link in some other app was asked if he wanted to open the youtube link in YouTube or in Chrome. Now android will automatically open up YouTube link instead of asking a user to choose between YouTube app and Chrome Browser.

Improved app link support in Android Marshmallow

6. Smarter Batteries

Android M uses Doze feature to increase battery performance wherein Doze automatically puts an android device into sleep state. Doze uses motion sensors to find the duration in which device is not active and based on this information, Doze reduces the background processes so as to reduce battery drains.

Further, App Standby feature in Android M reduces battery drain from seldom-used apps limiting impact of these apps on battery life leading increased charge in a device. Lastly USB type C support is Android M will help in quickly transfer power and data all through same cable. This will provide fast charging to a user giving hours of power in few minutes.

Apart from these features, Android M provides following features, which were not discussed in Google I/O:

1. Auto Backup and Restore for Apps

Autoback up and restore for apps was one of most interesting feature that was not discussed Google’s I/O keynote speech. This feature has been missing in Android for years and with Android 6.0, users will be able to automatically back up their apps and app settings (with a file size limit of 25 MB or less per app) to Google Drive. The uploaded backup data won’t count against the user’s Google Drive storage quota. These backups happen no more than once a day and run only when the device is idle and is connected to a working Wi-Fi connection to avoid unwanted data charges and battery drain on your device.

2. New app drawer

App drawer is one of the most immediately obvious visual changes in Android M. The new app drawer vertically scrolls instead of horizontally, and is held against a white background. Further, at top of the menu four most recently used apps are also put up to provide ease to a user.

New app drawer in Android Marshmallow

3. Now on Tap (Contextual Assistance)

This feature provides contextual assistance to a user without the user leaving the app he is presently in. Now on tap spreads the concept of Google Now to entire OS so that a user can use this feature on any screen regardless of what he is doing.  User needs to touch and hold home button and Now on Tap will provide relevant contents after carefully analyzing user’s context.

Thus, if a user getting an SMS from a friend for going to a XYZ restaurant for dinner then Google’s Now on Tap will automatically recognise context of the text in the SMS (XYZ restaurant) after long press on the home button and thus will show results to the users based on user’s context (in this case XYZ restaurant) and thus will show useful results related to XYZ restaurant as shown below:
Now on Tap in Android Marshmallow

4. RAM Manager

Android M introduces a new RAM manager in Android M with memory section now located at front and centre in setting menu. This is aimed at providing more accurate and comprehensible information regarding the maximum and average RAM usage of apps. Based on this information, user will be able to optimize their app usage and remove apps which needs to be removed in order to increase device performance and battery life.

New RAM Manager in Android Marshmallow

5. Expendable Storage

Expendable Storage is Google’s new storage feature which takes an external storage source (such as an SD card or USB drive) and formats it like an internal storage space. This allows for using any external storage as encrypted extended storage for apps and games.

6. Direct Share Feature

Android M makes sharing intuitive and quick for users wherein developers will be able to specify sharing targets deeper inside their apps. Thus, a user will be able to directly share content to a specific friend or community in another social network. Thus, for an example an app will be able to directly share a content to an exact contact in a chatting app in a single step. Presently it used to take 2 steps to share content.

Direct Share Feature in Android Marshmallow
Apart from these main features, some of the other new features in Android M include support for improved cut/copy/paste implementation, bluetooth stylus support, improved bluetooth low energy scanning for nearby beacons and accessories, option to remove status bar icons, rotating home screen options etc.

Google declining CPC: Is mobile to be blamed for this?

Google posted its first quarter earning for 2015 on April 23, 2015 reporting $17.3 Billion revenue and EPS of $6.57.  Google missed market’s earning expectation of $17.5 Billion by a whisper and market gave Google thumps up for 12% YoY increase in revenue and the reported decrease in its Capital expenditure.
Pricing pressure on online ads led to 7% YoY decrease in Cost Per Click, however Google reported 13% YoY increase in aggregate paid clicks. The increase in aggregate paid clicks could offset the decline in cost per click and based on increased paid clicks Google could increase its YoY advertising revenue despite making less money per ad.  Finally Google ended up with $65.43 Billion cash and cash equivalents in Q1, 2015.
Some of the major highlights of Google’s Q1 earning can be seen as follow:
  • Revenue – Google’s Q1, 2015 revenue increased to $17.3 Billion, which is 12% up from $15.4 Billion revenue in first quarter of 2014.
  • Paid Clicks – increased by 13% YoY but decreased by 1% with respect to the previous quarter. This includes 12% YoY decline paid clicks from Networks and 25% increase in paid clicks due to Google sites
  • Cost Per Clicks – has seen decline for last 11 quarters and this has come up as big area of concern for Google. CPC saw 7% YoY decline.
  • Traffic Acquisition Cost – Traffic acquisition cost as a percentage of advertising revenue got down to 21.6% in Q1, 2015 to 23.1% in Q1, 2014.


Google’s Historical Revenue Data
Google gets most of its revenue through Advertising with 2 main components, namely advertising revenue from paid clicks on Google websites and advertising revenue on paid clicks on Google Network Members’ websites, contributing 89.5% of its total revenue in 2014.
Paid Click vers Cost Per Click mismatch in Google
Google has been grappling with Pricing vers Supply trend mismatch since 2011 wherein volume of paid search has been rising and cost for each click has been decreasing. This can also be seen in the figure as below:
Declining Cost Per Click
The falling CPC has led to  being interpreted as Google beginning to lag in advertising economy and thus started being left behind by players like Facebook and Twitter. But, can it always be said that falling CPC is the true measure of advertising effectiveness of a firm? We will discuss in detail about the trends in Google’s CPC and its advertising revenue in following section:
1. Shift to mobile
Google has around 90% market share in mobile search and thus dominates the mobile search engine market due to exceptional adoption of  Android OS by smartphone users. Android has 80% OS wise market share in smartphone landscape and google is expected to continue its leadership position in this area. Continuing decline in CPC has been attributed to massive shift to mobile and difficulties in monetising search on mobiles. Further, ads on mobile websites brings in smaller revenue than similar ads on desktop. But this trend may reverse due to innovations like Enhanced campaign.

2. Growth of advertising on you tube

As per Google CFO Pichette, rapid growth of advertising on youtube rather than difficulty in monetisation mobile search is the main reason for decline in CPC. Further youtube ad monetisation is influenced by following factors:
a. Rapid growth of youtube viewership – Youtube has over 1 Billion MAU and youtube has grown very rapid in world more especially in less developed countries. Further, ad rates are less in less developed countries than ad rates in developed countries and this has led to overall decline in CPC.
b.  Growth of True View ads on Youtube – Number of advertisers on youtube has grown substantially by 45% YoY and all the top 100 largest advertising brand on Youtube run True View ads.  True View ads charge advertisers only when an ad is watched for 30 seconds or more by a user and this leads to lower monetisation from True View ads than monetisation from This has also led to decline in CPC for Google.


3. Multi platform enhanced campaign – Google introduced multi platform Enhanced Campaigns so as to make cross device paid search campaigns easier for advertisers to manage.  Multi platform enhanced campaign tie mobile and desktop bids together and thus ads on tablet can not be separately bid by an advertiser. Further, it was also presumed that CPC price for tablets will be pulled up to desktop levels as there will be same bid for both desktop and tablets. Most AdWords campaigns were converted to Enhanced by the end of July last year.
4. Realignment of advertising revenue in favour of mobile devices
Since large number of web traffic (in range of 50%) has started coming from mobile devices, advertisers have started realigning their ad budgets in favour of mobile devices.  Further, advertisers with less spending on mobile advertisement started putting more money for mobile advertisement and this might have led to decrease in desktop revenue as some money have got diverted from desktop and have been shifted towards mobile. Lack of price discovery arising due to shift in spending pattern of advertisers might have skewed the overall CPC but in longer run CPC for mobile devices and desktop may align to their respective prices.
5. Role of emerging markets
Increased share of emerging market has also led to overall decrease in CPCs as increased number of clicks from emerging market brought overall CPC down.  Most of Google growth is coming outside USA and European market which is a low priced market. Thus although, Google is able to add search volume but this addition is coming at a cheaper rate bringing overall CPC rate down.

6. Increasing CPC but decreasing paid clicks on Google Network Member’s site – For the last 2 quarters, CPC on Google network member’s properties has been increasing YoY and paid clicks on these properties have been decreasing YoY. The increase in CPC might be due to the fact that network ads might have been historically sold at lower price than Google’s site and this increase might be due to catching up by network’s ad CPC.

7.Decreasing CPC but increased paid clicks on Google Site –  But, Google web sites sold more
ads at a decreasing price a scan be seen below:
But as a whole, it can be seen below that Google earns more money form its own sites than network sites as can be seen below:

8. Increased contribution of advertising in Google’s revenue:

Google earned 59 Billion USD revenue through advertising which constituted 89.5% of its revenue. This shows Google’s dependence of advertising for its revenue and any decreasing trend, either in price or volume can have large impact on Google’s competitiveness.


Revenues (in millions) by revenue source for the periods as presented:
Year ended December 31
Advertising Revenue
Google Websites
Google Network Member’s websites
Total Advertising Revenue
Other Revenue
Total Revenue
Percentage of revenues by source as a percentage of total revenues for periods presented:
Year ended December 31
Advertising Revenue
Google Websites
Google Network Member’s websites
Total Advertising Revenue
Other Revenue
Total Revenue

Thus, it is difficult to say if average CPC is cause of worry for Google if overall click volume and overall revenue is increases.  and overall revenue is increasing. If Google is able to leverage its presence in desktop, search, youtube, chrome, android etc in a better way and is able to deliver well targeted quality ads for advertiser then falling CPC in short run should not be cause of worry for advertisers as there might be many exogenous factors that may be leading to decrease in overall CPC.
Google’s revenues from Google Network Members’ websites include revenues generated primarily through advertising programs including AdSense for search, AdSense for content, AdExchange, AdMob, and DoubleClick Bid Manager.
Paid clicks on Google websites include clicks related to ads served on Google owned and operated properties across different geographies and devices, including search, YouTube engagement ads like TrueView, and other owned and operated properties including Maps and Finance.